TUI’s first quarter revenue rose 13% to €4.9bn, driven by higher demand at improved prices.
Underlying operating profit rose from €6.0mn to €50.9mn (€16mn expected), marking the tenth consecutive quarter of growth. Holiday Experiences led the improvement with particularly strong performances in Hotels & Resorts, Cruises and TUI Musement.
Net debt increased slightly on the prior year, from €4.0bn to €4.1bn.
Bookings for the winter and summer period are up 2%, with average prices 4% higher – slightly lower than when the last update was given. Full year guidance was reiterated, looking 5-10% revenue growth and underlying operating profit growth of 7-10%.
The shares fell 6.8% in early trading.
Our view
TUI is delivering, but once again it’s a softer outlook that’s weighed on shares as bookings growth for the summer period has slowed.
TUI operates a diverse travel business, owning an airline, cruise ships, hotels, and resorts, and serves over 20 million customers across more than 180 destinations. Despite broader economic pressures, consumers have been prioritising travel, enabling TUI to raise prices while filling more rooms and cruise cabins. This combination of higher prices and fewer empty spaces has boosted efficiency and profitability.
Despite some softening trends, there is still positive booking momentum and progress on selling prices. That’s also been the case for the Airline segment, with one-third of summer seats already sold.
In some ways, having a wide package holiday business makes it more defensive - there's more to offer and plenty of cross-selling opportunities. But the drains on cash when you have planes, huge hotels and even cruise ships to fill are enormous, so occupancy rates creeping higher across the business comes as welcome news.
Tui has made a conscious effort to balance the amount of guaranteed capacity (which carries financial risk if not sold) with options that can be adjusted based on demand. This gives a much more robust earnings profile than a few years back.
Debt levels have been a concern in the past but are now at a level we’re comfortable with. Continued improvements on this front will be key to any potential return of dividends, which are never guaranteed. Bear in mind now that the shares are no longer listed in London, any dividend income may now be subject to withholding tax.
We can't knock progress but remain wary of some wider risks. Tensions in the Middle East and the Suez Canal have the potential to disrupt business and put some customers off travelling. This is largely outside of TUI’s control and can make it difficult to map demand accurately.
TUI’s diverse offering and attractive valuation offer both upside potential and some downside protection, making it one of our preferred names in the sector. But the cyclical nature of the industry, as well as the sensitivity of demand to macro-events, means there are likely to be more ups and downs ahead.
Environmental, social and governance (ESG) risk
The transport industry is medium risk in terms of ESG, with European firms managing them better than others. Carbon emissions, product governance, and quality & safety are the biggest risk drivers. Other key areas are emissions, effluents & waste, labour relations, and employee health & safety.
According to Sustainalytics, TUI’s management of ESG risk is average.
TUI has a very strong whistleblower programme and has appointed board-level responsibility for overseeing ESG issues. However, ESG disclosures fall short of best practice, and there is no reference to linking executive pay to ESG targets.
TUI key facts
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